Monday, 28 May 2012

Helmut Kohl should have stopped the euro project

Kohl should have stopped the euro project

Martin Feldstein, Professor of Economics at Harvard University and former Chairman of President Ronald Reagan’s Council of Economic Advisers, sees the eurozone crisis as a result of France´s persistent pursuit of the "European project".

After World War II the two leading French politicians, Jean Monnet and Robert Schuman proposed the creation of a United States of Europe. The two French politicians argued that a European political union similar to the one in America would prevent the kind of conflicts that had caused three major European wars, "an appealing idea, but one that overlooked America´s horrific Civil War", writes Feldstein.

The Monnet-Schuman dream led to the Treaty of Rome and later - in order to create a sense of political unity - to the Treaty of Maastricht, which established the European Union.

What then followed was based on another French dream:

The influential report “One market, one money,” issued in 1990 under the leadership of the former French Finance Minister Jacques Delors, called for the creation of a single currency, relying on the specious argument that the single market could not function well otherwise. More realistically, advocates of a single currency reasoned that it would cause people to identify as Europeans, and that the shift to a single European Central Bank would herald a shift of power away from national governments.

CommentsGermany resisted the euro, arguing that full political union should come first. Since there was no chance that the other countries would accept political union, Germany’s position seemed like a technical maneuver to prevent the establishment of the single currency. Germany was reluctant to give up the Deutsche Mark, a symbol of its economic power and commitment to price stability. Germany eventually agreed to the creation of the euro only when French President François Mitterrand made it a condition of France’s support for German reunification.

CommentsMoreover, under pressure from France, the Maastricht Treaty’s requirement that countries could introduce the euro only if their national debt was less than 60% of GDP was relaxed in order to admit countries that were seen to be “evolving” toward that goal. That modification allowed Greece, Spain, and Italy to be admitted.

CommentsThe pro-euro politicians ignored economists’ warnings that imposing a single currency on a dozen heterogeneous countries was bound to create serious economic problems. They regarded the economic risks as unimportant relative to their agenda of political unification.

Professor Feldstein´s obvious conclusion is that the European project clearly has failed to achieve what the French political leaders wanted:

Instead of the amity and sense of purpose of which Monnet and Schuman dreamed, there is conflict and disarray. Europe’s international role is shrinking, with the old G-5 having evolved into the G-20. And, with German Chancellor Angela Merkel setting conditions for the eurozone, France’s ambition to dominate European policy has been thwarted.

Professor Feldstein´s description is very much to the point. However, in naming "the fathers of failure", one should not forget former German chancellor Helmut Kohl, who could - and should - have stopped the euro project. Mitterand would not have been able to stop German reunification for very long.